What is tokenization?

Tokenization is the process of digitizing traditional assets into the form of digital tokens on a blockchain. Each token represents rights to a specific asset, whether it be real estate, art, movable goods, or financial instruments. Tokens can be easily traded, improving liquidity and market access.

How does tokenization work?

Tokenization allows the division of rights to large and indivisible assets into smaller parts, lowering the entry barrier for investors. Additionally, it enhances transparency and efficiency in business processes, as all transactions are recorded on the blockchain.

Real estate tokenization enables investors to purchase fractional ownership rights to a building or land through digital tokens. For example, a property owner can issue tokens representing shares in property rights that can be traded on a digital platform. Art and collectibles can also be tokenized, allowing shared ownership and investment in works that would otherwise be inaccessible to most consumers.

Financial instruments can also be tokenized, increasing their liquidity and enabling investment even with small amounts. Tokens can also represent ownership of physical commodities such as gold, oil, or wheat. These tokens facilitate easy trading and storage while ensuring that the physical commodities remain securely stored.

Why Is tokenization used?

Tokenization has a wide range of applications and can be used for the following reasons:

Additionally, tokenization can be used for better security of personal data and information, automation, and higher efficiency of financial processes through smart contracts, as well as streamlining payment systems.

DLT Pilot regime

The regulation on the pilot regime for market infrastructures based on DLT introduces a regulatory framework that allows for the testing of distributed ledger technology (DLT) in capital markets. This regime is designed to support innovation and assess the potential of DLT in trading financial instruments such as stocks and bonds, making it closely associated with the concept of tokenization.

The purpose of the regulation on the pilot regime for market infrastructures based on DLT is to enable trading and post-trading activities with tokenized financial instruments through exceptions in cases where existing legal regulations prevent or significantly restrict such activities. This regulation focuses on four general and interrelated regulatory objectives.

The first objective is to ensure legal certainty. The second objective is to support innovation by removing barriers to the adoption of new technologies in the financial sector. The third objective is to ensure consumer and investor protection as well as market integrity. Provisions specifically aimed at financial stability and consumer and investor protection are not among those from which DLT-based market infrastructures can be exempted. The fourth objective is to ensure financial stability by introducing appropriate safeguards, such as limiting the types of financial instruments covered by the pilot regime.

Why Is tokenization important for the National Bank of Slovakia?

The National Bank of Slovakia is interested in tokenization for several reasons:

If you are considering using tokenization services, we recommend thoroughly understanding how they work and consulting with an expert.

Documents from international standardization institutions

European Supervisory Authorities

International organizations in financial market regulation

Last updated on 14 Feb 2025